- Every person providing taxable service (service provider) shall pay tax @ prescribed rate , to be collected in prescribed manner. [section 68(1)]
- Service recipient is a person liable to pay service tax in certain cases [section 68 (2)]
- Defined in rule 2(1)(d) of Service Tax Rules, 1994 and 2(m) of POP Rules, 2012
- Service provider
- Specified service receivers [Rule 2(1)(d)(i)(A to G)]
- Importer of service
Person liable to pay Service Tax under Section 68
In case of services covered under Section 68(2) read with 2(1)(d)
Service | Liable to pay service tax |
Insurance agent | Service Recipient (i.e. Insurance company) |
GTA Specified personsIn other case | Person liable to pay fright GTA |
Sponsorship service to body corporate / firm | Recipient of service |
Arbitral tribunal / individual advocate/ firm of advocate | Recipient of service |
Support service to Govt. / local authority subject to other conditions | Recipient of service |
Director’s services to Companies | Recipient of service (i.e. Company ) |
Rent-a-cab service subject to other conditions | Recipient of service |
Supply of manpower service subject to other conditions | Recipient of service |
Works contract service subject to other conditions | Recipient of service |
Services provided from non-taxable territory to any person in taxable territory | Recipient of service |
1. Every person who is liable to pay service tax shall take registration under service tax as per section 69 of Finance Act, 1994
2. Service recipient shall obtain registration under service tax as recipient of service, pay service tax and file return
3. Assessees who have to take registration
- Service provider who has provided a taxable services of value exceeding Rs. 9 lakhs in the preceding financial year
- Service receiver liable to pay service tax under reverse charge mechanism u/s 68(2) / rule 2(1)(d)
- Input service distributor
- Importer of service being person liable u/s 68(2)
Service tax payment – different scenarios
- Normally, service tax is payable by person who provides the service
- Section 68(2) makes provision for reverse charge i.e. making person receiving the service liable to pay tax
- Authority for reverse charge u/s 68(2) of Finance Act, 1994
- W.e.f. 1.7.2012, a new scheme of taxation is applicable whereby the liability of payment of service tax shall be both on the service provider and the service recipient (Notification No. 30/2012-ST, dated 20.6.2012 )
- The extent to which tax liability has to be discharged by the service receiver is specified in Notification No. 30/2012-ST dated 20.6.2012.
- Renting of motor vehicles
- Manpower supply & security services
- Works contracts
- Insurance related services by agents
- Goods Transportation By Road
- Sponsorship
- Arbitral tribunals
- Legal services
- Company director’s services
- Services provided by Government / local authority excluding specified services
- Services provided by persons located in non-taxable territory to persons located in taxable territory.
- Liabilities of both the service provider and service receiver are statutory and independent of each other
- Liability cannot be shifted by mutual agreement
- Reverse charge will not apply where the service receiver is located in non-taxable territory
- Reverse charge shall not be applicable if provider of service was liable before 1.7.2012
- Service Tax will not be payable by service receiver under reverse charge, if service was provided prior to 1.7.2012, even if payment is made after 30.06.2012
- Credit of tax paid can be availed by service recipient if it is input service for him
- The credit of tax paid by the service recipient under partial reverse charge would be available on the basis on the tax payment challan (but invoice required)
- Service provider under RCM may claim refund of tax paid under rule 5(b) of CCR, 2004
- Service Tax under reverse charge to be paid within 6 months on actual payment (Rule 7 of POT Rules, 2011)
- Small scale benefit is available only to service provider (not to service receiver), if entitled
- Service receiver under reverse charge cannot avail exemption of Rs. 10 lakh under Notification No. 33/2012-ST dated 20.06.2012
- Valuation of services by services provider and service receiver can be on different principles, if permitted by law (e.g. works contract – Refer Notification No. 30/2012-ST, explanation II)
- Invoice to be prepared as per Rule 4A of Service Tax Rules, 1994
- It is a statutory obligation (not contractual) on the service recipient to pay Service Tax, whether under full or proportional reverse charge
- Service Tax under reverse charge has to be paid only by cash vide GAR Challan No. 7 and it cannot be paid by way of utilization of Cenvat Credit.
- Once paid, Cenvat credit can be taken for paying eligible input service
- Service receiver liable only for his portion
Important Points in Joint Reverse Charge Mechanism
- Individual
- Hindu undivided family (HUF)
- Firm (including limited liability partnerships)
- Association of persons
If both the above conditions are not satisfied in respect of these three services, Service Tax shall be payable by the service provider in ordinary course.
Service Provider | Service Receiver | Service Tax Payable by |
Individual /HUF/ Partnership firm /AOP | Business entity – body corporate | Joint |
Individual /HUF/ Partnership firm /AOP | Individual /HUF/ partnership firm /AOP | 100 % by service provider |
Business entity –Body Corporate / Company | Individual /HUF/ Partnership firm /AOP | 100 % by service provider |
Business entity –Body Corporate | Business entity – Body Corporate | 100 % by service provider |
- For three specified services provided by business entities being company, society, co-operative society, trust etc, reverse charge will not apply.
- Reverse charge will also not apply where the service recipient is any person or business entity not being a body corporate in case of three specified services
- “Business Entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession
- “Body Corporate” means the meaning assigned to in clause (7) of Section 2 of the Companies Act, 1956 and section 2(11) of 2013 Act.
- Company , corporation and LLP are ‘body corporate’
- Firm, HUF, Trust and Co-operative society are not ‘body corporate’
- But firm includes LLP for Service Tax
Reverse Charge Mechanism under various Services
Sr. No |
Description of Service |
Service Provider |
Service Receiver |
1. |
Services provided by an insurance agent to any person carrying on insurance business |
Nil |
100% |
2. |
Services provided by a goods transport agency in respect of transportation of goods by road |
Nil |
100% |
3. |
Services provided by way of sponsorship |
Nil |
100% |
4. |
Services provided by an arbitral tribunal |
Nil |
100% |
5. |
Services provided by individual advocate or a firm of advocates by way of legal services |
Nil |
100% |
5A. |
in respect of services provided or agreed to be provided by a director of a company to the said company ( w.e.f 7.08.2012) |
Nil |
100% |
6. |
Services provided by Government or local authority by way of support services excluding,- 1. renting of immovable property, 2. postal services 3. transport of goods / passengers 4. air craft or vessel |
Nil |
100% |
7. |
Hiring of Motor Vehicle (a) renting of a motor vehicle designed to carry passengers on abated value to any person not engaged in the similar line of business (b) renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business |
Nil 60% |
100 % 40% |
8. |
Services provided by way of supply of manpower for any purpose or security services (w.e.f 07.08.2012) |
25% |
75 % |
9. |
Services provided in service portion in execution of works contract |
50% |
50% |
10. |
Services provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory |
Nil |
100% |
Service Specific Issues under RCM
Director’s Services
- Vide entry No. 5A of N. No. 30/2012 as amended by N. No. 45 and 46/2012
- Service tax is payable under reverse charge by companies who receive services from their directors who are not in employment
- Sitting fees, commission, bonus, etc. are subject to service tax
- WTDs /MDs /EDs who are under contractual employment with the company and receive salary or remuneration from the company will not be covered – considered as employees of the company
- Director can be appointed either in an individual capacity or as a nominee for company , association or any other entity including Government.
- Interest on loan by director to company, dividend on shares, other professional charges on account of services not rendered as a director (in professional capacity) are not liable to Service Tax
- In case of nominee director, the nominating company who receives fees will be liable to pay service tax.
- The invoice / receipt to be issued by the directors within 30 days
- In case of nominee directors, the invoice will be issued by the nominating company
- In the case of Government nominees, the services shall be deemed to be provided by the Government but liable to be taxed under reverse charge basis
Particulars |
Position upto 6.8.2012 |
Position w.e.f. 7.8.2012 |
Individual Director in his individual capacity |
To be registered and pay service tax |
Service tax paid by the company |
Nominee Director |
Paid by the nominee director’s company |
Paid by the nominee director’s company |
Manpower Supply Services
- Service is manpower supply service if under command of principal employer
- Cleaning service, piece basis / job basis contract is not manpower supply service
- Service tax will be applicable on salary plus PF, ESI, commission of labour contractor and other chargesž
- Employees sent on deputation are also covered under manpower supply services
Security Services
- Security services means services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity
- CA services are not security services
- Distinction between manpower supply & security services
Rent-a-cab Service
- In case of renting of motor vehicles to carry passengers where abatement is also available, reverse charge basis is proportional depending upon the abatement on the condition that no Cenvat Credit has been availed. The service provider should provide a certificate, either in the invoice itself or separately.
- In case of renting of motor vehicle to carry passengers, reverse charge applies only where service receiver is not engaged in same business.
- Reverse charge will be applicable when renting to a person who is not in similar line of business
- Service receiver will pay on 40% in every case whether abatement is claimed or not
- No Cenvat credit (not an input service)
Goods Transport Service
- Service tax liability arise when consignment note is issued
- GTA will be liable to pay tax only when both service provider and service receiver are individuals
- Tax on 25% (abated value), if GTA does not avail Cenvat Credit, otherwise tax on 100% value
Legal Services
Service Provider | Service Receiver |
Individual Advocate / Firm / LLP | Business entity with turnover > Rs 10 lakhs in preceding financial year |
Arbitral Tribunal | Business entity with turnover > Rs 10 lakh in previous financial year |
Works Contract Services
Services provided by Government / local authority
1. Reverse charge applicable to all services except specified services
2. Government Department needs to be registered and pay tax on support services of –
- Renting of immovable properties
- Speed post, express parcel, life insurance.
- Transport of goods and/ or passengers
- Services in relation to vessel or aircraft
3. Services to be provided to any business entity located in taxable territory
Invoice/ Bill/ Challan in RCM
- Amount of Service Tax based on his share of Service Tax liability, if any, (which service recipient is required to pay to the service provider) – in case of joint or proportionate reverse charge liability.
- Fact that entire amount of Service Tax on the invoice is payable by the service recipient under reverse charge (if so).
- Invoice amount is inclusive / exclusive of applicable Service Tax.
- Alternatively, in case of proportionate reverse charge, service provider should charge Service Tax only on that part of the invoice for which he is liable to pay and wants to recover from the service recipient and mention that balance amount is payable by the service recipient.